Chancellor George Osborne unveiled the loan guarantee for the EDF’s proposed Hinkley Point plant while on a visit to China for talks with state nuclear companies, which are expected to take a major stake in the project.

Mr Osborne said nuclear power was “a crucial part” of Britain’s energy mix and hailed a “golden relationship between Britain and China – the world's oldest civil nuclear power and the world's fastest growing civil nuclear power”.

The Government itself is not lending any cash to Hinkley Point’s developers, but is offering a guarantee to commercial lenders that the taxpayer would step in and repay them if the developers went bust.

Without such a guarantee, it is thought EDF and partners would struggle to secure the necessary financing for the project.

The initial loan guarantee, worth about £2 billion, is expected to be the first of several if the proposed Somerset power plant proceeds.

The Government has received EU state aid clearance to guarantee up to £16 billion in loans through Infrastructure UK for the project.

Under the deal, Hinkley Point’s developers will pay Infrastructure UK an annual fee of 2.95 per cent of the value of the loan – about £59 million – in what is effectively an insurance premium in return for the guarantee. The £2 billion loan has to be repaid by 2020.

Illustration of the proposed Hinkley Point C plant Photo: EDF Energy

The Treasury said: “The initial deal is set to be worth around £2 billion and will pave the way for a final investment decision by energy company EDF, supported by China General Nuclear Corporation and China National Nuclear Corporation, later this year, and with further amounts potentially available in the longer-term.”

As part of the deal, the Chinese nuclear companies are expected to be allowed to lead in the development of their own reactor technology at another site, Bradwell in Essex.

In a statement the Treasury said Hinkley Point could “open the door to unprecedented collaboration in the UK and China on the construction of new nuclear power stations”.

Amber Rudd, the energy secretary, told the Financial Times that the Chinese "very much want to have their design up and running in the UK" because tough UK regulations would help to demonstrate its safety.

In addition to the loan guarantee for Hinkley Point, the Government has agreed a controversial subsidy deal that will see households pay double the current market price of power for electricity generated by the plant.

The project has faced mounting criticism in recent weeks from those who fear it is poor value for money, especially as it faces repeated delays.

Doug Parr, chief scientist for Greenpeace UK, said the loan guarantee announcement was "a PR smokescreen to give the impression that this project is moving forward when it's actually bogged down in a swamp of troubles".

Amber Rudd, the energy secretary, has indicated she hopes to see investors take a final decision to proceed with the project during a state visit to the UK by Chinese president Xi Jinping in late October.

If built, Hinkley could generate enough power to provide seven per cent of the UK’s electricity, powering about six million homes.